Commentary and analysis pertaining to legal issues affecting California law and business

The Common Law Release Rule, Going…Going…But Not Quite Gone

April 6, 2011

The Common Law Release Rule, Going…Going…But Not Quite Gone: Why settling against just one of several jointly and severally liable defendants without a good faith settlement determination might be dangerous.

By: Michael Nicoud

You would think that settling against one jointly and severally liable defendant would not prevent you from seeking recovery from any other jointly and severally liable defendants. But you might be wrong. In Ming-Ho Leung v. Verdugo Hills Hospital (2011), currently available on Westlaw at 11 Cal. Daily Op. Serv. 3519, a California Court of Appeals considered whether the common law release rule, which provides that a release of one joint tortfeasors for consideration automatically releases any and all other joint tortfeasors, is still good law in California.

Factual Background of the Lawsuit

Just days after being born, Aidan Ming-Ho, the minor-plaintiff, suffered from permanent brain damage, leaving him unable to move or talk. In the days following Aidan’s birth, he developed an advanced form of jaundice leading to a rare and serious medical condition. He was admitted to the hospital and given a blood transfusion after his parents noticed he had become lethargic and had difficulty feeding. Sadly, the transfusion came too late and Aidan had already suffered irreversible brain damage. He would need substantial ongoing medical care for the rest of his life, as well as physical and speech therapy.

Through his mother as guardian ad litem, Aidan sued his pediatrician along with the doctor’s professional corporation and the hospital.

Settlement with the Pediatrician and Procedural Background

Aidan settled with his pediatrician and his professional corporation for the $1,000,000 policy limit of his insurance. The trial court ruled that the settlement did not meet the good faith standards of California Code of Civil Procedure Sections 877 and 877.6 because the amount of the settlement was grossly disproportionate to the pedatrician’s potential exposure at trial. However, Aidan and his pediatrician decided to continue with the settlement and the case went to trial for apportionment of damages between the hospital and the pediatrician.

The jury found both the hospital and the pediatrician negligent. The jury awarded over $96,000,000 in total damages, with the hospital being found 40% negligent. The trial court approved Aidan’s minor’s compromise which left the hospital on the hook for 95% of the economic damages, and severally liable for 40% of the noneconomic damages (Only $250,000 of the damages were noneconomic).

On appeal, the hospital contended that it was not liable for any of the economic damages because the release rule applied. It argued that because the hospital and the pediatrician were jointly and severally liable for the economic damages, and because the pediatrician had been released from liability in exchange for consideration, the release rule provided that the hospital was also released from liability for the economic damages. Ultimately, the court reluctantly agreed with the hospital, after considering the current state of the release rule in California. In practical terms, Aidan was left unable to recover the hospital’s 95% share of over $96,000,000.

The History of the Release Rule in California

The California Supreme Court has historically followed the release rule, which provides that a release of one joint tortfeasor for consideration automatically releases all other joint tortfeasors from liability. The scope of the rule was drastically limited by an exception providing that if the plaintiff enters into a covenant not to sue rather than a release, the other joint tortfeasors can still be held liable. Of course there is no practical difference between a covenant not to sue and a release from liability, but this legal fiction allows settling plaintiffs to sidestep the release rule.

The reach of the release rule was narrowed even further in 1957, with the enactment of Civil Code Section 877. Section 877 provides that as long as a release of one joint tortfeasor is given in good faith and before verdict or judgment, it will not operate as a release of the other joint tortfeasors. The settlement will decrease the amount of the claims against the other joint tortfeasors by the amount of the settlement, but this is a much less drastic remedy than the release rule.

Here, the Verdugo court considered the California Supreme Court’s treatment of the release rule and concluded that while the Supreme Court had repeatedly narrowed the scope of the release rule it had never completely abandoned it. The Verdugo court acknowledged one case that held the enactment of Section 877 effectively ended the applicability of the release rule in California. (River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 999-1000.) However, the Verdugo court expressed its disagreement with that case given that the California Supreme Court has never specifically said the release rule is no longer the law in California. The Verdugo court also pointed out that the California Supreme Court had at least implicitly acknowledged the existence and applicability of the release rule as recently as 1985. (Citing to Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 294-95, 301.)

The Current State of the Release Rule in California

Between the California Supreme Court’s narrowing of the applicability of the release rule, the “covenant not to sue” exception, and the enactment of Section 877, the release rule is all but dead in California. However, under Verdugo the release rule is still applicable when Section 877 does not apply.

It may not stay this way for long however. With the constant narrowing of the rule, the California Supreme Court may be ready to completely abandon the doctrine. It is questionable that the doctrine provides any real value now, given that simply providing for a covenant not to sue, in lieu of a release, makes the release doctrine inapplicable. The Verdugo court seemed to strain to avoid agreeing with the hospital that the release rule still applied. The court even went so far as to “urge the California Supreme Court to repudiate the release rule once and for all.” (Verdugo, p. 15) But until that happens, you may just want to hold off on that release of liability, and instead, you might want to offer a covenant not to sue. The one thing this case illustrates perfectly is the importance of obtaining a good faith settlement determination in cases involving jointly and severally liable defendants.